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Impounded Chinese cruise ship awaits release in South Korea with bond payment

Passengers leave Chinese cruise ship Henna, which is stranded at the port of Jeju on Jeju island, south of Seoul September 15, 2013, to go t
Passengers leave Chinese cruise ship Henna, which is stranded at the port of Jeju on Jeju island, south of Seoul September 15, 2013, to go t

By Jack Kim and Pete Sweeney

SEOUL/SHANGHAI (Reuters) - A Chinese cruise boat impounded in South Korea over a commercial dispute with another Chinese firm was awaiting release and clearance for departure on Monday, an official on the South Korean island of Jeju said.

The vessel, the Henna, had been due to leave mid-afternoon after its owner put up a 3 billion won ($2.76 million) bond and it was unclear what was delaying the departure. But the South Korean judge overseeing the case in Jeju had yet to give the go-ahead, an official in the island province said.

"The judge has yet to instruct the lawyer (for the cruise ship company) to go to his bank and deposit the bond money," the official said by telephone.

Official Chinese media have reported that 1,119 passengers aboard the Henna have already been flown from Jeju to China at the cruise operator's expense following Friday's seizure. Passengers were compensated for the inconvenience.

The ship had been ready to leave after HNA Tourism, the vessel's owner, posted the bond to lift an order from a South Korean court to impound it on behalf of a Chinese creditor.

HNA Tourism is run by the HNA Group, which also owns Hainan Airlines among other subsidiaries. A spokesman for HNA Tourism declined to comment on the report of the ship's release.

The creditor is Shagang Shipping Co Ltd, a Hong Hong-registered company that was previously related to mainland-listed Jiangsu Shagang Co Ltd but now operates independently.

Shagang Shipping took action against HNA after it was awarded $58 million against an HNA offshoot, Grand China Shipping (Hong Kong), following an arbitration hearing in London over outstanding lease payments on a 180,000 deadweight ton iron ore and coal carrier leased to Grand China.

China is a signatory to a New York convention which recognizes arbitration awards in foreign jurisdictions such as London or New York.

But they were sometimes hard to enforce in China partly because of the weakness of the Chinese court system and the difficulty of proving assets were owned by the debtor company, legal experts said.

END OF BOOM HITS SHIPBUILDERS, OPERATORS

The ship was chartered at the height of the shipping boom, but Grand China stopped making lease payments after the shipping markets collapsed in late 2008. The decline in shipping rates has hit both Chinese shipbuilders and operators hard thanks to massive overcapacity.

The HNA Group has had similar legal trouble over shipping payments in the past, as have other Chinese ship operators.

In 2011, Greek and Norwegian shipping companies accused Grand China Logistics, another HNA Group subsidiary, of withholding payments on chartered vessels, and in the same year China Cosco Holdings temporarily halted charter payments to force renegotiation of contracts it deemed overpriced.

The arbitration award covered lease payments that Grand China should have paid up to the end of the charter.

Claims have been pursued in the U.S. courts against Grand China Shipping (Hong Kong) with Grand China Logistics Holdings (Group), Grand China Shipping (Yantai) HNA Group and Ocean Container Trading (Hong Kong) all named as co-defendants among other HNA subsidiaries because they guaranteed or indemnified debts incurred by Grand China Shipping (Hong Kong).

Calls to Shagang Shipping for comment regarding the release of the ship were not answered. A statement from Shagang on Saturday describing the cause of the conflict said it was concerned about the welfare of the passengers, but that Shagang would continue to pursue its claims against the HNA Group.

Chinese media reported that two passengers had suffered heart attacks while the ship was impounded. The official China Daily said passengers were not informed of the seizure by HNA tours for 20 hours. Hundreds of remaining passengers and crew members remained in South Korea waiting to return home.

China Daily reported that HNA Tourism had reported the incident to the Ministry of Foreign Affairs and the National Tourism Association and may seek damages from Shagang, quoting a statement distributed by HNA Tourism to local media.

Officials in Jeju said they regretted the incident, but were unworried the seizure would damage its reputation as a major tourist destination.

"Our position is that it was an unfortunate incident but we have been acting under the decision of the judiciary according to the law," said one official. "We are not concerned about any impact on Chinese tourists visiting our province."

($1 = 1087.0250 Korean won)

(Additional reporting by Keith Wallis and Chen Yixin; Editing by Ron Popeski)

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